First Regulate Sweatshops, Pirates, and Casinos, Then Open Trade

By Donella Meadows

–September 23, 1993–

What is it about NAFTA (the North American Free Trade Agreement) that lines up such a wierd coalition as Jesse Jackson, Ross Perot, Pat Buchanan, and Greenpeace against it — and a wierder coalition of Bill Clinton, Bob Dole, the Mexican government, and the World Wildlife Fund for it?

It’s simple, the anti-NAFTA crowd would say. The principled people are on our side — though our principles differ. Real conservatives know that NAFTA undermines local control and leads to world government. Real liberals know it will devastate labor and the environment. You can only love this deal if you are a large corporation, or beholden to one.

It’s simple, says the pro-NAFTA crowd. Anyone against NAFTA is a protectionist trying to hang onto an undeserved trade advantage, or a racist trying to keep the Mexicans down, or a commie-environmentalist trying to stop the growth of capitalism, or an ignoramus who doesn’t understand economics.

In fact it’s not simple. The move toward NAFTA and other free trade agreements is part of the evolution of a completely new system of trade and finance. This system doesn’t sleep in any time zone. It has lightning-quick reactions and a global reach. It moves and multiplies money with little concern for what the money stands for, and it has no allegiance to any nation’s laws.

People who understand and use this system store their wealth in the cyberspace of offshore banks. Some of them are computer hotshots playing billion-dollar games, unconcerned about real-world consequences. Some are business people mesmerized by short-term bottom lines. A few are electronic crooks, pirates, and gamblers. The central issue raised by NAFTA is who, if anyone, is going to set and enforce rules to control the problems they cause.

PROBLEM ONE: SWEATSHOPS. William Greider in his book Who Will Tell the People? describes Ciudad Juarez, Mexico, across the river from El Paso, Texas as mile after mile of crude huts, made of tarpaper and packing crates, with no sewers, no paved streets. Greider calls it a “dusty, treeless subdivision of industrial poverty.” The people who live there are employees of maquiladoras — assembly plants for such proud American companies such as General Electric, Ford, GM, RCA, Westinghouse, Honeywell.

This region is already a proto-NAFTA, a free-trade zone where companies are permitted to move parts and products across the border without duties or tariffs. Since this zone was established, U.S. companies have hired over 500,000 Mexicans there at wages of a few dollars a day. Between 1986 and 1990 the number of jobs in Mexico went up 25 percent, but Mexican wages fell by 50 percent, and the border region became a toxic dump.

Greider quotes Professor Gueramina Valdes-Villalva of Ciudad Juarez: “We have a shortage of water, sewers, electricity, streets. The city is pressed heavily by the two sectors who do not pay taxes — the maquiladora companies and the minimum-wage workers…. As the city deteriorates, it becomes more expensive for companies to locate here. For the first time last year, we had negative growth in Juarez. Some of the employers are leaving…. Eastern Europe has become very attractive to them.” Freely flowing international capital knows nothing of local responsibility.

PROBLEM TWO: PIRATES. The infamous Bank of Credit and Commerce International (BCCI) was chartered in Luxembourg, run by Pakistanis, funded largely by the Sheikh of Abu Dhabi, and active in 69 countries. By July 1991, when regulators in seven nations shut it down, it had deposits worth $20 billion. Since it didn’t have assets worth $20 billion, millions of depositors, from Pakistani workers in England to African central banks, lost everything. BCCI failures in the U.S. will cost taxpayers at least $2.5 billion.

Where did the money go? It supplied illegal weapons all over the world, including the components of a nuclear bomb for Pakistan. It went into untraceable accounts in Panama and the Cayman Islands for drug smugglers and terrorists. It bribed politicians in many countries. It bought and sold military secrets. It set up favored clients not only with huge, unsecured loans, but with hunting parties in Sind and prostitutes in London.

It took years to forge the coalition of national regulators that finally stopped this pirate bank. Now Pakistan refuses to extradite the bank’s managers, and Abu Dhabi will not release the bank’s records. The lessons of BCCI have not yet been translated into any form of international control over outlaw banks.

PROBLEM THREE: CASINOS. For every dollar’s worth of goods or services traded across international borders, about 25 dollars flow. One of those dollars pays for the actual economic exchange, the other 24 play on the global casino.

The casino bets on the exchange rate between marks and pounds, on the interest rates of dollar loans in New York versus yen loans in Tokyo, on the relative changes of the Dow Jones index versus the Nikkei index. From your laptop, wherever you go, you can buy options or futures or swaps on real things such as Chicago hog bellies, or unreal things such as Eurodollar interest rates.

Gambling is OK in its place, but not when it dominates markets. Speculation can turn an orderly exchange into wild turbulence, especially when the speculation is run by computer programs that buy and sell derivative securities at high speed and in unregulated currencies. Eurodollars, for example — U.S. dollar accounts held outside the U.S. — are not subject to Federal Reserve rules, or any rules. They have been increasing at a rate of about 25 percent per year, while dollars in the U.S. have been growing at 10 percent, and real trade at only 4 percent. The stateless, unregulated Eurodollar system is now about the same size as the U.S. domestic monetary system — and it’s built on sand.

Our domestic debate on NAFTA, with its strange bedfellows, is too narrow. The people making the most noise see (or admit) too little of the whole picture. NAFTA is part of a worldwide economic revolution driven by people who are loyal to nothing but their own short-term, monetarily defined interest. They are creating a system so unstable, so uncontrollable, that it might well bring them down along with everyone else.

Free international trade and international finance require strong international regulation, not as a side agreement, not years after abuses have been revealed, but firmly in place before the trade is freed.

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About The Donella Meadows Project

The mission of the Donella Meadows Project is to preserve Donella (Dana) H. Meadows’s legacy as an inspiring leader, scholar, writer, and teacher; to manage the intellectual property rights related to Dana’s published work; to provide and maintain a comprehensive and easily accessible archive of her work online, including articles, columns, and letters; to develop new resources and programs that apply her ideas to current issues and make them available to an ever-larger network of students, practitioners, and leaders in social change. Read More

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